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GASB Clarifies Accounting for Partnership Arrangements

GASB
issued a pair of new standards last week, one that addresses how to
account for and report service concession arrangements (SCAs) and
another that the board said is
designed to improve financial reporting for governmental entities by
amending the requirements of Statement no. 14 and Statement no. 34.

Statement
no. 60, Accounting and Financial Reporting for Service Concession Arrangements, addresses how to account for and report
SCAs, which are a type of public-private or public-public
partnership that GASB said state and local governments are
increasingly entering into.

GASB said in its press release that common examples of SCAs
include long-term arrangements in which a government (the
“transferor”) engages a company or another government (the
“operator”) to operate a major capital asset—such as toll roads,
hospitals and student housing—in return for the right to collect
fees from users of the capital asset. In SCAs, the operator
generally makes a large upfront payment to the transferor.
Alternatively, the operator may build a new capital asset for the
transferor and operate it on the transferor’s behalf.

Statement no. 60 provides guidance on whether the transferor
or the operator should report the capital asset in its financial
statements, when to recognize upfront payments from an operator as
revenue, and how to record any obligations of the transferor to the
operator. The statement also provides guidance for governments that
are operators in an SCA.

The
board said Statement no. 61, The Financial
Reporting Entity: Omnibus, is designed to improve
financial reporting for governmental entities by amending the
requirements of Statement no. 14, The Financial
Reporting Entity, and Statement no. 34, Basic Financial
Statements—and Management’s Discussion and Analysis—for State
and Local Governments. The board said in a press
release that the new standard will meet user needs better and
address reporting entity issues that have come to light since those
statements were issued in 1991 and 1999, respectively.

The board said Statement no. 61 will improve the information
presented about the financial reporting entity, which is comprised
of a primary government and related entities (component units). The
board also said amendments to the criteria for including component
units allow users of financial statements to better assess the
accountability of elected officials of the primary government by
ensuring that the financial reporting entity includes only
organizations for which the elected officials are financially
accountable or that the government determines would be misleading to
exclude.

Statement
no. 60 is effective for financial statements for periods beginning
after Dec. 15, 2011. In general, its provisions are required to be
applied retroactively for all periods presented. Statement
no. 61 is effective for financial statements for periods beginning
after June 15, 2012. Earlier application is encouraged. More
information on each standard is available at gasb.org.

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